by Mitch Kokai
Senior Political Analyst, John Locke Foundation
As part of her push for the 2020 presidential campaign, senator Elizabeth Warren (D., Mass.) is due to announce a plan for a wealth tax on assets over $50 million. Advised by economists Emmanuel Saez and Gabriel Zucman of Berkeley, she proposes a 2 percent rate, which increases to 3 percent for those with over $1 billion in assets. But while there may be good arguments for wealth-based taxation systems, the constitution forbids them in the U.S. Its prohibition on “direct taxes” mean that a ‘clean’ wealth tax set simply by percentage is impossible. To remain constitutional, a wealth tax would have to take on a deeply distorted form, one that would place a heavy burden on poor states.
Without an unlikely constitutional amendment, this is what would happen. Because a direct tax must be “apportioned among the several States” according to “the Census or Enumeration herein”, the total revenue of the tax would have to be decided beforehand by the government, and then apportioned to each state by population, not by any wealth-related measure. So if a state contains 10 percent of the national population, it will pay 10 percent of the tax, regardless of wealth. …
… Not only would this tax system put a relatively heavy burden on poor states, the fact that tax incidence is determined by population means that the wealthy can move their assets to states with different tax burdens.